I am travelling tomorrow and Tuesday, so here is Monday Morning Chartology
Last week, the S&P reset its short term trend from a trading range to up. Indeed, this chart is back into the ‘what can I say?’ territory. The index is above both DMA’s and in uptrends across all timeframes. My Market assumption remains: ‘while valuations continue to reach historical extremes, I can’t see an end to this uptrend as long as the money keeps flowing with abundance and in the absence of any major negative exogenous event.’
The long bond struggled higher on the week. While some progress was made, it could not make a higher high. That leaves it in a very short term mini pennant formation. For the moment, it appears a bottom has been made. But the question is, how much upside momentum does TLT have? Stay tuned.
GLD continued to gather strength last week. While it remains in a downtrend dating back to last October, it did manage to negate a really short term downtrend. Remember that gold got very overextended to the upside late last year. So, the current retreat is normal. It needs to show more follow through to the upside---like voiding that downtrend dating from October 2020---before I get too optimistic about a return to former highs. In short, follow through.
I thought that I would throw in a picture of the VIX this week. As you can see, it has been whacked the last couple of weeks, pushing towards historic lows. That is a signal that fear is being drained from the Market and ultimately leads to overconfidence and then correction.
Friday in the charts.
Review of Last Week
US statistical releases, including the primary indicators were negative last week. That is a bit of a surprise; though, again, we are still working our way through February results. So, one unexpectedly poor week is no reason to question the ongoing recovery.
The one number that does bear mentioning is the very hot March PPI report. This likely indicates that the US economy is entering the period in which everyone agrees will witness rising inflationary pressures. Where there is disagreement is whether or not the increases will be transitory. As you know, Chair Powell assures us that that will be. While many other experts disagree. As you also know, I am in the latter camp. Whoever is right is less important than the fact that we appear to be entering the period of rising inflation and we will know soon enough if it is a temporary phenomenon or a more permanent one.
One other comment. We now know the rough terms of Biden’s Plan, phase one. Last week, I held out the hope that if his proposal was composed of productivity enhancing infrastructure projects and was paid for with taxes (or reduced spending in other government programs; as if), then, in my opinion, it would be a plus for the US economy.
Well, no such luck. Unfortunately, only a fraction of the spending goes to true infrastructure improvement. The rest is basically social welfare which is anything but productivity enhancing. The bottom line is that this plan in its current form would raise inflationary pressures and inhibit economic growth (servicing a massive increase in debt usurps capital investment). In short, this only makes me more convinced that rising inflation and slower secular growth is the correct forecast.
Overseas, the data flow was again quite positive, supporting the notion that the rest of the world’s economies are also recuperating.
Bottom line. ‘As I have tried to highlight, the issue isn’t whether or not the US (world) economy is rebounding, the issue is its magnitude and duration. As you know my opinion is that following an initial snapback, the US economy will likely return to its former subpar secular growth rate, stymied by irresponsible mix of fiscal/monetary policies.’
News on Stocks in Our Portfolios
What I am reading today
Quote of the day.
‘Lost golden city’ arises out of Egyptian sands.
Remains of an alien planet lurk deep within earth’s mantle.
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